Tuesday, February 4, 2014

Suntec REIT - A display of growth potential (CIMB)

Suntec REIT
Current S$1.59
Target S$1.96
A display of growth potential

SUN ended FY13 on a high note, with 4Q13 revenue and net property income (NPI) posting a +30.2% yoy and +10.2% yoy jump, respectively. FY13 DPU was 3% above our forecast. The strong growth in earnings was mainly attributed to the opening of Phase 1 of Suntec City following the completion of AEI works. We maintain an Add rating with an unchanged DDM-based (discount rate: 8.0%) target price of S$1.96 on the back of further income contribution from the near-to-completion Phase 2 of Suntec mall in 1Q14.

Strong quarter
Suntec REIT (SUN) posted a respectable 4Q13 revenue of S$71.6m (+30.2%) and NPI of S$49.8m (+62.9%). The strong growth was mainly attributed to the completed Phase 1 AEI at Suntec mall. Currently, these area boasts a high 99.6% committed occupancy, while the areas unaffected by the AEI reported an occupancy of 91.3%. Together with Park Mall, SUN’s retail malls have achieved a high occupancy of 97.3% while its office portfolio remained at 99.6%.

AEI to bring near-term growth
Phase 2 of the AEI has achieved an impressive pre-commitment of 97.0%, scheduled to be completed in 1Q14, SUN is expected to benefit from the additional income contribution in 3Q14 (assuming 2-3 months of a fitting out period). However, earnings in 1H14 are expected to remain weak as SUN begins Phase 3 of the AEI in early Feb, which is scheduled to be completed in 4Q14. During the results briefing, management indicated that the AEI continues to remain on track for a 10.1% ROI, securing an average rental rate of S$10.10–S$12.59 psf/mth (based on stabilised rent).

Well-poised for future growth
With 12.5% of office space up for renewal in FY14 and asking leases secured at S$8.65 psf/mth last quarter, we expect SUN to continue to achieve positive rental reversions in FY14 - particularly on the back of a recovering office market. In addition, the recent acquisition of Leighton Tower is expected to bring the next stage of growth for the REIT in FY16 when the construction is completed. On the basis of clear growth prospects, we maintain an Add rating with an unchanged target price of S$1.96.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 24/01/14

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